Dec

23

The Washington Post, December 21, 2007 – The $3.1 billion merger between Web search king Google and online ad giant DoubleClick approved by U.S. regulators yesterday may create an advertising powerhouse of unrivaled reach and knowledge of Internet users’ lives, desires and interests.

The acquisition of DoubleClick combined with Google’s search function and the data it collects from people as they use the Internet could result in Web surfers seeing more advertising that corresponds to their online activities. The trade-off, some say, is that users would lose control over more of their private information to Google.

Given its global scope, the deal still requires approval by the European Union, which has been more strict than the United States on antitrust reviews. The ambitions of big U.S. companies such as Microsoft have been curbed by European regulators.

Privacy advocates and Google’s rivals have shifted their lobbying to Europe, where Google has a larger share of the online-search market.

The deal is one of many big-money mergers between Internet companies and advertising firms this year and heralds the era of data-based advertising, as companies seek more ways to acquire data about what people are doing on the Internet and to deliver highly targeted advertising to them. The fear is that the collection of so much personal data by one firm could expose it to theft and abuse via the Web or even cellphones.

Google has excelled at “contextual advertising,” or sending text-based ads to Google users that relate to their search topics. For example, if a user searches for a specific automobile, Google will send car ads with search results.

DoubleClick is the Internet’s leading company for producing display advertising for Web sites — banners ads, video and such. The company has provided display advertising for almost every major online publisher, including Web sites for Sports Illustrated, About.com and PriceGrabber.com.

Combined Google and DoubleClick technology could evolve so it delivers precisely targeted display and video advertising to the customers most likely to buy their advertisers’ products.

Online is the fastest-growing sector in advertising, expanding at an annual rate of about 20 percent, far outpacing television, radio or outdoor. Because the Internet can tell advertisers a great deal about who sees their ads — where they live, how much time they spend looking at the ad, which site they saw it on — companies such as Google are buying companies with the most sophisticated tools to deliver ads to Internet users.

The deal was approved without conditions in a 4 to 1 vote yesterday by the Federal Trade Commission. The FTC said it does not think it is approving a Web advertising monopoly, though one commissioner and some others disagreed.

In a written statement, the commission said the merged companies would not control the user-data market, pointing out that Google’s chief rivals — Microsoft, Yahoo and Time Warner — “have at their disposal valuable stores of data not available to Google.”

In a statement on Google’s corporate blog after the FTC vote, David C. Drummond, the company’s general counsel, wrote: “Perhaps most importantly, the FTC’s decision publicly affirms what we and numerous independent analysts have been saying for months: our acquisition does not threaten competition in what is a robust, innovative, and quickly evolving online advertising space.”

FTC commissioner Pamela Jones Harbour disagreed, writing in her dissent: “I make alternate predictions about where this market is heading, and the transformative role the combined Google/DoubleClick will play if the proposed acquisition is consummated.”

Privacy advocates were more forceful in their criticism of the proposed takeover.

“Google will be able to develop the most detailed profile of users around the world,” said Jeffrey Chester, executive director of the Center for Digital Democracy. “It will become the world’s private ministry of information.”

Google’s rivals, led by Microsoft and AT&T, expressed concern about Google’s ability to use the data aggregated by the merger to muscle out competitors in the online advertising market. Google’s recent experiments to expand its advertising reach into other media, such as mobile phones and television, have also set off alarms among competitors and privacy advocates.

Microsoft bought an Internet-ad shop earlier this year, paying $6 billion for aQuantive, a Seattle firm that combines traditional media campaigns with search-based and new-media techniques, all built on user data.

Microsoft and AT&T declined to comment on the Google-DoubleClick merger approval.

Some in the advertising industry reacted to the FTC vote with caution but generally with less alarm than others.

“As with most mergers, they have beneficial aspects of the merger and slightly potentially troubling aspects of the merger,” said Kevin Lee, executive chairman of Didit, which advises advertisers on how to spend their online marketing budgets. “This will make it easier to buy across different media types and across different targeting methodologies all at the same time, but the more troubling aspect is the reduction of competition.”

Asked about the potential privacy concerns of the deal, Robert D. Liodice, president of the Association of National Advertisers, was more blunt.

“Doesn’t everyone know everything about everybody anyway?” said Liodice, whose group asked the FTC to review the Google-DoubleClick merger. “We’ve got identity theft going on everywhere. We have a national issue of people not being able to trust whether their private information is secure or not. I view the potential concern about the Google-DoubleClick deal as a drop in the bucket compared to the national issues at play.”

Though the FTC noted its concerns about deal’s privacy implications, the panel said it does not think it has the authority to consider privacy in an antitrust review.

“This merger, and their forays into other media, helps Google follow you if you want them to — and even if you don’t — across a huge expanse of the globe,” said Joseph Turow, a professor at the University of Pennsylvania’s Annenberg School for Communication.

More people use Google than any other search engine; 65 percent of all Internet searches are conducted through Google. In the third quarter of this year, the company reported revenue of $4.2 billion. Google shares closed at $689.69 yesterday, up $12.32.

DoubleClick’s 2006 revenue was about $150 million, according to a number of reports. Its $3.1 billion price demonstrated Google’s zeal to buy the company and the growth potential Google sees in online advertising.

Europe’s approach to privacy policies tends to be more strict than that taken in the United States. Privacy is explicitly enshrined as a fundamental human right in the European Union’s constitution — but the E.U. regulatory body reviewing the merger has said it will focus on antitrust issues and complete its review by April 2.

“The E.U. is a bigger potential roadblock than the FTC was, but it’s hard to say if they’d actually block the merger,” said Blair Levin, an analyst at Stifel Nicolaus. “It’s a possibility but by no means a certainty.”

If the European Commission were to impose conditions on the merger, Google could collect different data about its users in the United States and Europe. The company declined to say whether it would do that.

The FTC is considering alternative ways to address the privacy issues inherent to data-gathering in online advertising. Separate from the merger review, the FTC issued a call for comments on five self-regulatory privacy principles for online advertising companies.